Wednesday March 11, 09:03 PM
MONEY MARKETS-LIBOR dollar rates ease as financials bounce
By George Matlock and Ellen Freilich
LONDON/NEW YORK, March 11 (Reuters) - The interbank cost of borrowing sterling funds eased on Wednesday and dollar funds snapped a 2-1/2 week rise in three-month money rates at the London fixings ahead of the Bank of England's first reverse auction of UK gilts.
The three-month euro London Interbank Offered Rate (Libor) was fixed at 1.66563 percent, a fresh euro lifetime low .
The Bank (TBHS - news) of England bought back UK government bonds as part of its efforts to inject liquidity into the financial system, buying up nearly 2 billion euros of debt earlier.
The goal of the Bank of England's purchases was to 'get Libor rates down, narrow the OIS spreads and get credit markets working again,' said Matteo Regesta, a strategist at BNP Paribas (Paris: FR0000131104 - news) in London.
But he said that while rates and OIS spreads had been falling for several successive sessions, this was not only because of the announcement last week of details of the Bank of England's reverse auction.
'The rates are also reacting to the introduction of the asset protection scheme in the UK, as well as to a rally by stocks in the financial sector,' said Regesta.
U.S. stocks rose for the second day in a row after JP Morgan Chase's chief executive said his bank was profitable in January and February, echoing Citigroup (NYSE: C - news) 's CEO a day earlier.
At the London fixings on Wednesday, three-month sterling Libor was fixed at 1.88875 percent, compared with 1.91 percent on Tuesday.
In New York, ICAP (LSE: IAP.L - news) said its New York Funding Rate rose with the three-month NYFR rising to 1.3482 percent on March 11, from the previous session's 1.3309 percent, ICAP said.
That was much above the 3-month dollar-denominated London interbank offered rate last fixed at 1.32594 percent.
ICAP's one-month NYFR rose to 0.5955 percent from the previous session's 0.5900 percent. That was also higher than the one-month dollar-denominated Libor rate last fixed at 0.55688 percent.
DOLLAR RATE FALLS
The three-month dollar bank-to-bank rate fell at the London fixing, for the first time since Feb. 20.
Ahead of the end of the first quarter this month, the three-month dollar Libor OIS spread as well as the TEDCASH spread -- the difference between three-month U.S. Treasury Bill and three-month dollar Libor rate -- stood at their widest in around two months, according to Reuters charts.
Three-month euro and sterling Libor-OIS spreads also narrowed on Wednesday.
'There are two reasons for why the U.S. money market indicators have widened. Firstly, the ongoing credit concerns. You can still see that in the financial sector's credit default swaps. Secondly, funding issues,' said Dresdner's Rieger.
But U.S. dollar funding costs rose for a fourth straight session in Asia earlier in a sign that the relief rally in stocks spurred by hopes Citigroup will report a first-quarter profit had not influenced short-term dollar borrowings.
U.S. dollar swap spreads narrowed significantly in Asia and continued this path in Europe, suggesting risk appetite could soon improve even in these short-end markets.
The spread between 2-year swaps and Treasury yields fell to 77.5 points in Asia from Tuesday's 82.25 points which was the widest since mid-December. In Europe it fell to 70 bps.
(Additional reporting by Vidya Ranganathan in Singapore; Editing by Kenneth Barry)
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